MM2 Asia started at Buy, called ’emerging force,’ by Nomura

Nomura started coverage of MM2 Asia at Buy, with a target price of S$0.68.

“Content is king, especially in the current digital age where consumption patterns are shifting drastically,” Nomura said in a note on Thursday. “We believe that MM2 is well positioned to capture these shifts, by leveraging on its strong content development capabilities and multi-platform business.”

MM2 is a content producer and entertainment group, with businesses in content production, post-production, cinema operations and events, concerts production and promotion, the note said.

Nomura pointed to three upcoming catalysts for fiscal 2019: First, the company announced a multi-currency MTN facility of US$300 million, which could alleviate any concerns over funding its Cathay Cineplexes acquisition. Nomura added that it estimated MM2 only needed S$166 million, or less than half the MTN, for the deal.

Cathay Cineplexes’ contribution

The second catalyst was immediate earnings per share accretion of around 15 percent for fiscal 2019 earnings after the Cathay Cineplexes deal, the note said.

The third catalyst was the potential listing of MM2’s post-production arm VividThree by the third quarter of 2018.

“Apart from these three catalysts, MM2’s larger and growing network across the content-creation value chain could enable the company to reap synergistic benefits, resulting in potential better margins across the group,” the note said.

Nomura said the stock was trading at 16.5 times fiscal 2019 price-to-earnings, a 9-25 percent discount to peers’ 18-22 times, which it called unjustified.